Saudi stock exchange joins MSCI emerging market index

THE Saudi stock exchange, Tadawul, has been upgraded to the status of an emerging market by global index provider MSCI, a step expected to lure billions of dollars in foreign investments.

The decision, announced late Wednesday, is the second key development for Tadawul, the largest Arab stock market with capitalization of over $525 billion, after the global FTSE Russell index granted it secondary emerging market status in March.

MSCI, in which the UAE and Qatari bourses are already included, will also cover Tadawul in two phases starting from June 2019, it said in a statement.

Minister of Finance Mohammed Bin Abdullah Al-Jadaan said: "These reforms in the Saudi financial market are in line with the Kingdom's Vision 2030 and the government's strong commitment to modernizing the Saudi economy through comprehensive reforms that have contributed to providing the market with the best international standards, making it more attractive to both domestic and foreign investors".

Minister Al-Jadaan added, "We will continue to build a financial market in which the system will be strengthened, investor confidence will increase and market functions will steadily evolve to serve the Saudi economy while stimulating savings, finance and investments".

The minister explained that this listing confirms confidence in stable and promising expectations of the Saudi economy, the strength of its financial markets, the expected participation of a larger number of international investors will contribute significantly to the growth, development and maturity of the market and the Government of Custodian of the Two Holy Mosques will continue to work with all relevant parties to further improve regulations in place to facilitate foreign investments following MSCI and other indicators.

Dr. Majed Bin Abdullah Al-Qasabi, minister of Trade and Investment, affirmed that the inclusion by the MSCI index of the Saudi market index in the emerging markets is a reflection of the Saudi market's efficiency in reaching global markets' levels.

The minister highlighted advantages of this move including enhancement of the liquidity in the Saudi financial market by increasing investments and diversifying investment opportunities for exporters and investors.

Vanessa Robert, a vice president and senior credit officer at Moody’s Investors Service, said: “The inclusion of Saudi stocks in the MSCI Emerging Markets Index will facilitate investors’ accessibility to the local stock market and will attract foreign investments into Saudi Arabia. International asset owners managing passive investment strategies in the emerging market space will see their investment universe broadened. $1.9 trillion in assets are currently benchmarked to the MSCI Emerging Markets Index suite”.

Mohammed El-Kuwaiz, chairman of the Capital Market Authority (CMA), the government's regulatory body for the sector, said the decision will expand liquidity base in the saudi bourse.

"The inclusion decision shall enhance the diversity of the investors' base as well as the liquidity of the saudi Capital Market," Kuwaiz said in a statement posted on Tadawul's website.

"Inclusion in the MSCI Emerging Market Index is an important milestone and further affirmation of the tremendous progress Tadawul has made in the past year," said its CEO, Khalid Al-Hussan.

The move follows a series of stock market reforms by Tadawul and its regulator, the Saudi Capital Market Authority, to make it easier for foreigners to invest.

In 2015, Tadawul introduced a program allowing large international institutions to invest on the market.

Since then, 120 international financial institutions have joined Tadawul and 180 others are in the process of joining, Tadawul said in March.

Saudi authorities say they plan to sell up to five percent of oil giant Aramco within the next 12 months.

A portion of those shares will be listed domestically. Allowing foreign funds into the Saudi stock market will facilitate the sale of the planned IPO.

Salah Shamma, head of investment, MENA, Franklin Templeton Emerging Markets Equity, said: “Saudi Arabia’s inclusion in MSCI’s EM Index is a milestone achievement and will likely bring with it significant levels of foreign investment. It is a recognition of the progress Saudi Arabia has made in implementing its ambitious capital markets transformation agenda. The halo effect of such a move will be felt across the stock exchanges of the entire Gulf Cooperation Council (GCC). The region now becomes one that is hard for global investors to ignore. In our view, the GCC remains on a very positive trajectory; improving economic fundamentals, coupled with ongoing fiscal reform agendas make a compelling investment case.” — With input from Agencies